Did The Smart Money Play United Rentals, Inc. (URI) Correctly?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards United Rentals, Inc. (NYSE:URI) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is United Rentals, Inc. (NYSE:URI) a buy right now? Hedge funds were taking a bearish view. The number of bullish hedge fund positions shrunk by 10 recently. United Rentals, Inc. (NYSE:URI) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 59. Our calculations also showed that URI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a peek at the recent hedge fund action surrounding United Rentals, Inc. (NYSE:URI).

Do Hedge Funds Think URI Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards URI over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Lyrical Asset Management was the largest shareholder of United Rentals, Inc. (NYSE:URI), with a stake worth $462.4 million reported as of the end of September. Trailing Lyrical Asset Management was Impax Asset Management, which amassed a stake valued at $138.4 million. Pelham Capital, Citadel Investment Group, and Holocene Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to United Rentals, Inc. (NYSE:URI), around 7.12% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 5.93 percent of its 13F equity portfolio to URI.

Judging by the fact that United Rentals, Inc. (NYSE:URI) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that slashed their positions entirely heading into Q4. It’s worth mentioning that Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital sold off the biggest investment of the 750 funds watched by Insider Monkey, comprising close to $25.5 million in call options. Alexander Mitchell’s fund, Scopus Asset Management, also dropped its call options, about $9.6 million worth. These transactions are important to note, as total hedge fund interest dropped by 10 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Rentals, Inc. (NYSE:URI) but similarly valued. These stocks are ZTO Express (Cayman) Inc. (NYSE:ZTO), Bilibili Inc. (NASDAQ:BILI), Fortive Corporation (NYSE:FTV), Realty Income Corporation (NYSE:O), Coca-Cola Europacific Partners plc (NASDAQ:CCEP), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), and Toast Inc. (NYSE:TOST). This group of stocks’ market valuations are similar to URI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $981 million. That figure was $1382 million in URI’s case. Toast Inc. (NYSE:TOST) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. United Rentals, Inc. (NYSE:URI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for URI is 62.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, URI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on URI were disappointed as the stock returned -8.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.